Market Commentary

Making Cents of the Markets

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The markets took a breather from the rally/recovery that started on Boxing Day, pulling back just over 2% from their recent peak last Friday but finished with some positive momentum on Friday afternoon even if they couldn’t end green. From a technical perspective, the S&P, currently at 2743, tried unsuccessfully to break through the 2800 resistance level last week and this week’s drop brings it to a minor support level established in early February. The next support level would be about 3.5% lower at 2640, levels that held in October and November.

From a fundamental perspective, it’s clear the global economy is slowing down. The American corporate and personal tax cuts implemented in 2017 boosted spending in 2018 resulting in the growth they were looking for (and ironically increased the trade deficit)  but now that that extra money has filtered through the system, things are starting to slow back down. The trade dispute between the US and China, among others, is certainly having an impact globally as shown in the weak numbers out of Asia and Europe this week. China’s exports plummeted 21% year over year, missing predictions by a wide margin, clearly illustrating how the tariffs imposed by the US are having a substantial impact. The Chinese government also predicted 2019 economic growth of 6-6.5%, down from 6.6% last year. The trade war is only part of the equation though and the decline in Chinese exports is evidence that global demand is waning. The European Central Bank warned to expect a “sizeable reduction in the pace of economic expansion” and committed to leaving interest rates as is for 2019 and extend the stimulus program to encourage banks to keep loans flowing (and people spending).

We had a few different payroll and job reports out of the US this week and they all missed expectations. The really surprising one was from this morning when it was announced that the US added just 20,000 jobs in February, a substantial decline from the 311,000 added in January. But as we’ve said before, a single month does not make a trend and it’s better to look at three months or more before declaring that the labor market is reversing, especially when winter weather is being blamed for a fall in construction work. Also consider that the unemployment rate is near a 50 year low of 3.8% and the number of job openings (7.3 million) continues to exceed the number of unemployed (6.3 million) which taken together indicates that there is still a significant shortage of skilled workers. This is also indicative of why wage growth is a strong 3.4%.

Our Strategy

There are a number of levers the US can pull to extend the cycle and stretch out the economic slowdown, delaying a recession. The big two that are in focus right now include finalizing a deal with China so that global trade can pick up steam again, and leaving interest rates alone (and eventually dropping them). As we mentioned last week, the former is widely expected and is partially priced into the markets already. It’s just a matter of when. The latter, has materially changed in just the last 3 months.

We, along with most investment managers, have noticed that the US Fed has shifted from a “keep hiking interest rates until we get to neutral” theme in September (6 months ago), to a “let’s try and keep this cycle going for as long as possible” (2 months ago), to what many believe is going to be a “serious look at running inflation ‘hot’ for a while” (i.e: let inflation get above the 2% target without hiking interest rates). The market would look at this as a positive as keeping a hold on rate increases while the economic is still growing would help corporate profits and in turn, the valuations on stocks. As a result, if the US economy continues to outperform throughout 2019 as we expect, the markets should move higher.

A trade deal announcement would also result in the markets continuing their climb, likely allowing them to get back to the September peak levels. This is why we are poised to put cash to work once it is announced. We’re also viewing a pullback like this weeks as an opportunity to put cash to work as well. The sharp rally this year and the fact that the market couldn’t break through the resistance level last week caused us to be cautious but if they pullback further and hold at the next support level, and fundamental data continues to look as good as it is, we’d also use that as a time to buy. With the solid start we’ve had, we remain optimistic that 2019 will be a solid performing year.

Chart of the Week

The S&P500, highlighting the support (2640) and resistance (2800) levels:

It’s that time of year – tax season is upon us!

Tax season has officially begun and you may have already started receiving some slips in the mail. Roughly half the slips have been generated and sent out, but there are still a few that won’t be produced or sent until mid-end of March including:

  • RRSP contribution slips for deposits made after February 23
  • Some T3 slips (you may already be receiving some from Fund companies directly)
  • T5013 receipts
  • Realized Gain Loss reports (scheduled to be generated after March 19 when return of capital adjustments have been processed)
  • Tax Receipts Checklists

The official CRA deadline for some tax receipts is March 31, which is extraordinary given the deadline for taxes is April 30 but we are confident that you should have all your tax slips by the end of March.

Happy International Women’s Day!

Beyond the Markets

The Vancouver International Dance Festival (VIDF) is back for the month of March! The Festival features dance performances and workshops from diverse contemporary dance artists from all across the globe. Purchase your tickets to experience the most cutting-edge and exciting contemporary dance at several featured venues across Vancouver.

Take a look at the 2019 VIDF Program here.

Listen to this week’s Making Cents of the Markets on CKNW where we gave listeners insight into the Bank of Canada rate decision, interest rates and debt, as well as women and finance! Listen here.

This commentary has been prepared by Pinkowski Wealth Management. It is for informational purposes only. Raymond James Ltd. believes this information to be reliable but does not guarantee its accuracy or completeness and is not responsible for any errors or omissions. Raymond James Ltd, member Canadian Investor Protection Fund. This email may provide links to other Internet sites for the convenience of users. Raymond James Ltd. is not responsible for the availability or content of these external sites, nor does Raymond James Ltd endorse, warrant or guarantee the products, services or information described or offered at these other Internet sites. Users cannot assume that the external sites will abide by the same Privacy Policy which Raymond James Ltd adheres to.